The more that I've used cryptocurrencies, the more sure I am that it is the future of finance. We are at an exciting point right now as the growth is still in the exponential phase.
This viewpoint then suggests that I should put as much wealth as I can into crypto. While tempting, everyone must question themselves and ask "what if I am wrong?" and "which of my assumptions could be invalidated?"
So at the end of the day, I have put a large amount of money into crypto. At current, it constitutes about 25% of my net worth. That is a move that I can make because my financials are strong, I'm carrying no debt, and I have a relatively higher risk tolerance than most people.
But even outside of Bitcoin's growth, the Dollar has been declining in overall value against real assets for a while now. Housing is the most clear cut case of this, but there are many others. And wages haven't kept up. There is very good reason to worry that the Dollar will lose its status as the reserve currency and that our debt and continuing our failing fiscal policies will lead us to a really bad place with the Dollar.
As a country we (read: our politicians) have gotten away with this due to the unprecedented economic growth that happened during that time. That growth masked the decline of the dollar and end of the day still let to an improved standard of living. But no growth trend can continue on forever, and what we are seeing now is the slowing of economic growth while inflation continues to grow.
Once inflation starts, it can be hard to stop when your debts are already large and you are spending more than you bring in. This is where we find ourselves currently and there are only two ways out: really hard budgetary choices or a nasty spiral of inflation that pushes the big harms just beyond the next election.
And it is with that statement that we find ourselves at Bitcoin (primarily) as well as other cryptocurrencies.
So that said, let's get into the numbers. And don't forget the blah blah "I'm not a financial advisor, so talk to your financial advisor before making any decisions." But... if your advisor doesn't recommend at least 10% of your worth going into crypto, then your advisor is a moron (or constrained by moronic policy) and you should fire them immediately.
That is the bottom threshold: no matter who you are or what you do, you should get 10% of your net worth into cryptocurrencies. Start with Bitcoin and always keep at least half of your crypto holdings in Bitcoin.
Why 10%? No matter what your financial situation, locking up 10% isn't going to break your situation. And it is enough that if crypto does skyrocket, you'll have enough wealth in there for that growth to have a substantial positive impact on your life.
One constraint currently is that money put into crypto is essentially treated like an investment, so any gains on the crypto that are realized back into cash are subject to capital gains taxes. Given that, the best approach is to buy and hold with money that you know you won't need to withdraw. That's not to say that you can't withdraw it in a pinch, but it isn't ideal.
Now, if you can afford to put more money into crypto, then you should. If your net worth is over $500,000, then you can likely afford to put 15-20% of your money into crypto. Putting $100k into crypto may seem scary, but it is highly likely to pay off in the long run. As we'll note shortly - this money need not be static - while you may face large fluctuations in value, you can also get very strong yields on your Bitcoin or on other cryptocurrency assets by staking or adding your tokens to a liquidity pool.
But I should also note that if you have little to no net worth, then it is also critical to invest in Bitcoin. Inflation hits those living paycheck to paycheck the hardest, so it is important to counter that as much as you can. Save a little bit setup a small recurring Bitcoin buy each week. Even if it is $5 to $10 per week, that will add up over time and create a nest egg that can help protect you from inflation.
One other perk of investing in crypto now is that it is possible to earn a much better interest rate on your investments than what is available in traditional finance. You can read more about this in Generating Yield on Crypto - Crypto #6, but you can earn 6.2% APY on up to 1 BTC using Celsius, and higher yields than that on some DeFi (Decentralized Finance) platforms for other assets.
This interest should not be underestimated in its impact. Crypto acts as a risky asset with high growth potential (and thus potential for losses as well), BUT it also offers the stability of stable income returns similar to stock dividends. My crypto portfolio averages over 7% APY on various staking and liquidity rewards, which is almost entirely reinvested at this point. While yields are likely to decline somewhat in the future, this is a big benefit and substantially reduces the risk profile.
When taken together with the high upside if/when crypto becomes the dominant kind of finance, it makes investing in it a no-brainer. If my wife didn't work in TradFi (Traditional Finance), I'd almost certainly move even more money over.
Do you have a question about Bitcoin or about cryptocurrencies that you would like to have answered? E-mail us at: email@example.com and we can feature it in a future piece.